Simple Interest

6.7

Simple Interest

• The money earned on a savings account or an investment.

• It can also be money you par for borrowing money.

Simple Interest

I prtI = Interest (the money paid or earned for the use of money)P=Principal (the amount of money deposited or borrowed)r= annual interest rate (as a decimal)T= time (years…if in months put the number of months over 12)

Finding Interest Earned

Blake puts $500 in a savings account. The account earns 3% simple interest per year. What is the interest earned after 3 years?

P= $500R= 3%= 0.03T= 3 years

I=PRTI=(500)(0.03)(3)

I=$45

Finding the Balance

Blake puts $500 in a savings account. The account earns 3% simple interest per year. What is the balance after 3 years?

Balance= Principal + InterestBalance = 500 + 45Balance = $545 after 3 years

Finding Annual Interest Rate

You put $700 in an account. The account earns $224 simple interest in 8 years. What is the annual interest rate?

P= $700I= $224R= xT= 8 yearsI=PRT224 = 700(r)8224 = 5600(r)5600 56000.04 = rRate = 4%

Finding Amount of Time

A bank offers 3 savings accounts. The simple interest rate is determined by the principal. How long does it take an account with a principal of $800 to earn $100 in interest?

Less than $5001.5%

$500-$50002%

More than $50003%

P= $800R= 2%= 0.02T= xI= $100I=PRT100= 800(0.02) T100=16T16 166.25 =TTime = 6.25 years

Finding an amount Paid on a Loan

You borrow $300 to buy a guitar. The simple interest rate is 12%. You pay off the loan after 4 years. How Much do you pay for the loan?

Principal + Interest $300 + I

Find Interest:I=PRTI= 300(0.12)(4)I= $144

Principal + Interest$300 + $144

Total Paid on Loan = $444

The Rich Get Richer

Imagine you win a $5 million lottery. If you deposit that money for 10 years at 6% simple interest how much will you have at the end of 10 years?

P= 5,000,000R=0.06T= 10 I=PRT

I=(5,000,000)(0.06)(10)I=$3,000,000

How much do you have in your account?

5,000,000 +3,000,000=$8,000,000

Homework

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